Credit scores are a numeric assessment of your creditworthiness, often used by banking and financial institutions to evaluate an individual or a company’s financial history. When you apply for a secured or unsecured loan, lenders check your credit score. The score helps them decide whether to accept or reject the loan application, depending on the potential risk of default.
Hence, a credit score is a crucial parameter to understand a loan applicant’s creditworthiness. Since it is an essential aspect of financial inclusion and credit accessibility, there are only four credit bureaus in the country that the RBI licenses to generate this score. Experian is one of them.
What is Experian score?
Experian score is the credit score generated by the Experian credit bureau after performing a complete financial background analysis of an individual or a company. Banks and financial institutions send credit history about their clients to the credit bureau where it is analysed, and a numeric value, the Experian score, is derived.
This value is a three-digit numeric summary that ranges from 300 to 850, indicating the creditworthiness of the assessee. This is how the different ranges of Experian score are interpreted.
- Score between 300 – 549: Poor score with a bad history of financial management, defaults in repayments and credit utilisation, indicating a high risk for lending.
- Score between 550 – 649: Fair score with few payment defaults and an unbalanced credit mix indicating some risk in lending.
- Score between 650 – 749: Good score with good financial history and timely debt repayments indicating a low-risk profile for lending.
- Score between 750 – 799: Very good score with a strong financial record and creditworthiness. Lenders will consider this score low-risk and readily process loan applications.
- Score between 800 – 850: Excellent score with a near-perfect financial record, timely repayments, credit utilisation, and a balanced credit mix. Lenders can pre-approve loans at attractive rates for such low-risk candidates.
How is it calculated?
To calculate the Experian score, consider the following factors:
- Past and ongoing loans, and credit cards of the assessee.
- Debt repayment history of loans and credit cards.
- Credit utilisation by the assessee, i.e., how much of the available credit limit is regularly utilised.
- Credit mix of the assessee, i.e., how much of the debt is secured (home loan, auto loan, etc.) and how much is unsecured (personal loan, credit card, etc.).
- Recent inquiries by banks and financial institutions about a loan application.
- Frequency of applications for loans or credit cards.
Hence, to maintain a good Experian credit score, you should repay your outstanding debts or EMIs on time, limit the utilisation of available credit to under 30%, maintain a balanced credit mix, and only apply for loans when absolutely necessary.
Is Experian Score trustworthy?
Now, comes the matter of trustworthiness of the Experian credit score. Experian is an international credit bureau that has been operational in India since 2010. But globally, the company has been managing bureau data for more than 30 years. The company is experienced in data intelligence and provides scoring solutions with unique financial instruments, making its credit score quite authentic and trustworthy.
Furthermore, according to the RBI mandate, you can check credit score for free once a year. You can do this easily from the Experian site by making a soft inquiry, without affecting your credit score. By keeping track of your Experian credit score, you can ensure no discrepancies or missing information when calculating your creditworthiness.
In a nutshell, the Experian score is a credit score that communicates your creditworthiness to lenders and expedites the loan or credit card application process. By checking your credit score regularly, you can improve it if needed to avail quality credit.
